Are Google's Days of Dominance Beginning to Wane?
The European Union's competition watchdog has fined Google for a record-breaking $2.72 billion antitrust penalty for “abusing its market dominance as a search engine by giving an illegal advantage to another Google product, its comparison shopping service.” Even though this eye-popping amount, which is more than double the previous record gains the attention at first, the underlying message and the potential impact of this outside resistance on the future of Google, as well as how we “Google”, shop, socialize may actually go well beyond the initial fine. This article will primarily discuss those potential impacts on Google, other U.S tech titans, and consumers. However, before diving into the analysis and some early reactions from the industry, first, let me give you some context on the background of the case and calculations behind the EU’s $2.7 Billion fine.
The Decision Follows a Seven-Year Investigation
Google had entered the shopping comparison market in 2004 with a service called Froogle which allowed its users to compare products and prices online. However, the product didn’t work out as planned. As evidence, an internal document from 2006 discovered during the investigation stated: “Froogle simply doesn’t work.”
The product was renamed “Google Product Search” in 2008, and since then, Google had begun to implement, initially in the UK and Germany, and then further afield, a fundamental change in strategy to push its comparison shopping service, so it had broken EU law.
The original complaint to the EC came from Foundem, a shopping comparison site, by claiming that its service effectively vanished from Google search results weeks after launch in 2006, and was not reindexed until years later. In three years, the site was nearly invisible on Google, while continuing to rank highly in searches on Yahoo and Microsoft's Bing. The following investigation into this complaint was opened by the EU in 2012, and current Competition Commissioner Margrethe Vestager took over the case in 2014. By then, the number of complainants regarding the case had become over two dozen.
In the scope of the investigation, the commission looked at 1.7 billion search queries, which also means 5.2TB of actual search results from Google. What investigators found was quite interesting as on average, even Google Shopping's most highly-ranked rivals only appeared on page 4 of Google search results. Given 90 percent of user clicks are on the page, Vestager said: "As a result, competitors were much less likely to be clicked on."
The investigators also noted that the trend is exaggerated further for searches on mobile phones. As a result of Google’s illegal practices, the commission found specific evidence of significant drops of traffic to certain rival websites of 85 percent in the UK, while the drop was up to 92 percent in Germany and 80 percent in France. “These sudden drops could also not be explained by other factors,” Vestager said. “Some competitors have adapted and managed to recover some traffic but never in full.”
Based on the finding that Google is the dominant player in the European search engine market, the EU regulator is further investigating whether the company may have abused its position, specifically in its provision of maps, images and information on local services. I wonder if the commission concludes that those products also result in favoring Google’s services then, will Google have to go back to its initial layout that demonstrates only Google search without options at the top such as maps, images, news, books, and so forth? Vestager emphasized that there are no formal investigations into those products at this point, though.
The commission’s fine of $2.7 billion was said to take into account the “duration and gravity of the infringement”, and was based on Google’s revenue from its comparison shopping service in the 13 countries where the illegality occurred. However, the amount can go up as Vestager has given Google 90 days to first, stop its illegal activities and then, explain how it will reform its ways. Otherwise, the tech titan will face punitive further fines of up to 5 percent of the average daily worldwide turnover of Alphabet. This decision also makes the company liable to face civil actions for damages by any person or business affected by its anti-competitive, illegal action.
Why is this Announcement So Important?
“Today’s decision shows that in Europe companies must compete on their merits,” said Vestager. “Regardless of whether they operate online or on high streets, regardless of whether they’re European or not. We invite you to make the most out of the European market, and the potential of 500 million citizens — and therefore 500 million potential customers. And we congratulate you for being successful. But the applause stops when you stop competing on the merits. You’ll never get a free pass to stop competing on the merits — neither in the market you dominate, nor in other markets.”
If you have doubts about how powerful this decision could be to make such difference, let me banish them by taking you back tg 2009 when Microsoft was found guilty of abusing the dominance of its Windows operating system to push people towards its browser, Internet Explorer. As a result, the company had to include Browser Choice - remember the pop-up asking Windows users which browser they'd prefer? After this implementation, the adoption rate of Internet Explorer dropped from 55 percent to 21 percent as Google Chrome surged beyond all the internet browsers.
Among other infamous European Commission fines; In 2009, Intel was ordered to pay a fine of $1.2 billion for anticompetitive practices as the US chipmaker was found to have given significant price discounts to computer manufacturers Acer, Dell, HP, Lenovo and NEC in return of having them buy its chips. Recently, Facebook also was fined for providing incorrect or misleading information during the commission’s 2014 investigation into Facebook’s acquisition of WhatsApp.
As a dominant company in search, Google has a huge influence both on the market where it’s dominant and in any other market. Therefore, the majority of casual users are, sometimes implicitly, sometimes explicitly, getting affected by Google’s search results when they decide on buying products and services. Keeping this prevalent influence in mind, the moral of this particular investigation story relies on proving that search is not a monopoly. Another important message that the EC tries to convey is that turning the market dominance into powerful marketing for the company itself to provide leverage won’t be tolerated. In fact, to stress this point, in conjunction with the announcement of the fine, the commission said it “has already come to the preliminary conclusion that Google has abused a dominant position in two other cases, which are still being investigated.”
The first case is about the Android operating system, as the Commission has been conducting an investigation into the complaint claims that Google has “stifled choice and innovation” in a range of mobile apps and services by “pursuing an overall strategy on mobile devices to protect and expand its dominant position in general internet search”, while the second investigation concerns AdSense, a Google service that allows websites to run targeted ads. The commission is trying to find out if Google has used its power to limit choices and access to third-party competing services. The commission potentially can fine Google up to 10 percent of its annual revenue (around $9 billion) in each investigation.
Unfair Treatment Against American Tech Companies
Some companies have been accusing the EU of unfair treatment against American tech companies, especially, since the decision last year forcing Apple to pay Ireland €13 billion in back taxes. The EU denied accusations that Brussels had a bias against US firms based on the data gathered as a result of analyzing previous antitrust decisions made by the commission between 2010 and 2017, which concludes that only 15 percent of those decisions have hit US companies, while nearly two-thirds have targeted European firms. However, the EU Commission confirmed that the EU regulator had stopped cooperating with the US Federal Trade Commission who closed their antitrust probe of Google’s search business without significant penalty in 2013.
On the contrary, seven U.S. companies and industry groups, including Oracle Corporation, Yelp Inc., Getty Images, Inc., Disconnect, Inc., News Corporation, News Media Alliance, and Trip.com, had signed a letter to demonstrate their support for the European Union fining Google for favoring its own shopping service over others in search results. The opening paragraph of the letter was: “We represent US companies that employ hundreds of thousands of workers across 50 states. We are writing to express our support for the Commission’s enforcement action against Google,” and it ends with these sentences: “We believe that decisive action is necessary to restore competition and once again open the Internet to innovation and growth. We hope that your counterparts in the United States will use this as an opportunity to address similar anticompetitive conduct by Google.”
"Given the depth of Google's pockets, this is by no means a commercial disaster but it has the makings of a brand disaster. Google has always presented itself as 'the good guy' of technology, but if this record fine stands then it would be harder for them to argue that" said Rupert Bhatia, director of public relations at crisis management agency Rhizome Media.
Here’s a tweet from Prof Jeff Jarvis, author of “What Would Google Do?”:
“We applaud the European Commission’s leadership in confronting the discriminatory behavior of Google in the comparison shopping industry. Other regulators and companies have been intimidated by Google’s overwhelming might, but the Commission has taken a strong stand and we hope that this is the first step in remedying Google’s shameless abuse of its dominance in search,” wrote News Corp on its website.
"The EU has effectively decided that some companies have become too big to innovate. The EU's actions have created a cloud of uncertainty that will make large tech companies overly cautious about making changes to the user experience and service offerings that would benefit consumers... The only real beneficiary of today's ruling is the EU's treasury," said Robert Atkinson, president of the Information Technology and Innovation Foundation, a Washington-based think tank.
When I first heard the news, one of the things that struck my attention the most was the distinctive difference between the approaches by the EU Commission and by the U.S Commission which begs the question: Is there political interference and protection involved in the U.S commission’s decision?
Another argument thrown around was whether the decision is a punishment for being innovative. As a consumer, I really appreciate that the European Commission is passionately pursuing these issues to ensure that the digital world is providing fair economic opportunities for all sizes of businesses while protecting the best interest of consumers. There is no argument there that an excessive market power should abuse its position to foreclose competition to gain an unfair edge in any market. Even if Google appeals this decision in EU courts to delay a final resolution for years, I believe we will already start to see its impact, as the message has been conveyed to other dominant tech giants loud and clear, saying that their legal headaches may get worse from here on out.